PSEi breaches 6,000 level for the first time

MANILA, Philippines - The Philippine Stock Exchange index (PSEi) breached the 6,000 level for the first time on Monday morning, taking many by surprise.

Brokers cheered as the PSEi hit 6,001.17 at 9:40 a.m. As of 10:08 a.m., stocks hit 6,015.03 up 0.73%.

This is the fourth time the PSEi set a new record high in as many trading days in 2013.

April Lee-Tan, COL Financial group research head, attributed the market rally to improvement in general sentiment and liquidity.

"During the second half of 2012, everybody was expecting 2013 to be a very positive year and I guess that is already being reflected in share prices, coupled with liquidity and what has happened in the US, that is what driving the market higher right now," she told ANC.

However, Lee-Tan said one of the triggers for a possible correction could be the looming fight over the debt ceiling in the US.

"We're using technical indicators to help us identify the support levels, which is probably around the 5,700 level. As far as developments are concerned, one of the triggers for a possible correction could be the debt ceiling -- that it will not be resolved at the last minute or if ever it will be," she said.

"If you think of the Philippines, since the market has gone up significantly nothing has changed as far as economy is concerned. I hope we will see more surprises in the economy, so we can have some real drivers for the market going up, not only liquidity."

Last year, the PSEi was one of the best-performing stock markets in the world. The bourse hit 38 record highs in 2012. - With report from Warren de Guzman, ANC

After staging a strong curtain-raiser for 2013, the main-share Philippine Stock Exchange index is seen to challenge the 6,000-mark even though it is expected to enter a consolidation phase.

In the first trading days of the year, the PSEi broke record levels for three straight sessions and gained 2.66 percent, closing last week at an all-time high of 5,971.45.

Global markets were upbeat over a budget deal that enabled the United States to steer clear of a “fiscal cliff,” brought on by a series of tax increases and budget cuts.

Ramon Garcia of RTG & CO. said the market’s move last week, confirmed his projection that the index would break 6,000 in January.

“This will happen this week. I am confident too (that) volume will continue to surge and reach new heights,” Garcia said.

Erico Claudio of Pentacapital Investments suggested that breaching the 6,000 level was a foregone conclusion. However, he said, indicators pointed to a consolidation, or a sideways movement this week. This means the PSEi may move by more or less 1.5 percent.

“I don’t think there’s a major correction yet. But there are many factors preventing another massive or 3-5 percent rise,” Claudio said.

For instance, Claudio said, Wall Street is seeing some correction after digesting the recent US budget deal.

“The celebratory impact will diminish, which means it will either push index down or make it consolidate,” he explained.

But neither is there any big catalyst for a major correction. “There are no indications yet on earnings results. People usually will have an idea by the second half of the month,” Claudio said.—Doris C. Dumlao

Trading resumed last Jan. 2, and like the qualities of the “Water Snake”—the year as designated in the Chinese calendar—the market started cautiously and then picked up, turning into an increasingly active trading day.

The benchmark Philippine Stock Exchange index, or PSEi, advanced 48.26 points, or 0.83 percent, at 5,860.99 on a total value turnover of P4.35 billion and total volume of transaction equivalent to 2.24 billion shares, establishing another record high for the market—the first for the year.

To a large degree, the market’s performance was attributed to the reaction registered by financial markets worldwide over the controversial US “fiscal cliff” problem that received last minute remedial measure from the US Congress. The act supposedly put to a “stop hundreds of billions of dollars in automatic tax increases (in 2013) and spending cuts that risked plunging the world’s biggest economy into recession.”

Trading momentum extended the following day, Thursday, with another lurching advance equivalent to 73.06 points, or 1.25 percent, at 5,934.05—again, a new all-time record.

Curiously, the market’s overall advance for the day was precipitated by the increase of total value turnover to almost double that of the previous day at P7.53 billion on a total volume of transaction equivalent to 2.34 billion shares, just a shade over that of the previous day of 2.24 billion shares. It can only be explained by the fact the market apparently shifted its trading focus into big-ticket or first-line stocks.

Market bears on Wall Street, in the meantime, were not content with the remedial measure devised by the US Congress to avert the “fiscal cliff” that their sentiments weighed in on the second day of trading on Jan. 3. The Dow Jones Industrial Average (DJIA) fell 21.19 points, closing at 13,391.36. The previous day’s trading close was 13,412.55.

Unaffected, our market on Friday proceeded to establish another record high. It advanced further with a net gain of 37.40 points, or 0.63 percent, at 5,971.45.

This happened as total value turnover amounted to what seemed to be the market’s regular trading transaction level of P7.59 billion.

Different story

Market results have a different story to tell, though, when you look at the total volume of transaction of the day. Total volume dropped significantly below the 2.24 to 2.34 billion shares volume of the past two trading days. It fell 30 percent lower at 1.62 billion shares.

Taking a closer look at the transaction results, it appears that as the market continued to chase their usual stock favorites in the property, industrial, services and holding firm sectors, trading interest also heightened in the financial sector. Value turnover in the subsector doubled for the day.

You may observe that stock transactions revolved around companies with businesses programmed by the National Economic Development Authority (Neda) to play substantial roles in the economy’s growth.

Said observation will also lead you to understand why transactions in the mining and oil sector have been low in the first three trading days of the market. As pointed out in my last column, Neda is clearly not relying on the mining industry to play a significant role in the economy’s growth program.

On second thought, like I also said the last time, a disconnection between economic variables and stock market performance oftentimes happen. This is the reason why, even when a certain sector of the economy is hard put, some companies in that sector come out with sterling performance results.

So, even if the mining industry is not obviously included as a major factor in Neda’s economic development program, this will not deter some mining issues to outperform during the year.

If you have been following the news, you don’t even have to sharpen your pencils to identify which of the companies will make it big next year.

Year of the Water Snake

Chinese legends say that the snake is a dragon that fell from the sky. That is why the snake is also called the little dragon.

But unlike the dragon, the snake does not have any limbs or wings. It uses internal energy—through its abdominal muscles—to move. This is why legend further claims that the year of the snake is considered a lot different and peculiar in many ways in influencing lives and events than any of the other animals in the Chinese zodiac.

According to the Chinese lunar calendar, the year of the snake begins on Feb. 10 and ends on Jan. 30, 2014.

Following the 12-animal year and five-element year cycle mechanism of the Chinese lunar calendar, the last year of the water snake was in 1953. Considered water snake babies then were those born “between Feb. 14, 1953 and Feb. 2, 1954.”

The snake is also the sixth of the 12 animals that compose the Chinese zodiac. As chronicled, it was the sixth animal to arrive to bid farewell to Buddha before his departure to heaven.

What are we to expect in the year of the snake? According to one prediction, “it’s going to be slow to many.” But like the snake, according to another prediction, “the year will be tricky but exciting to some.”

As pictured, the year will move forward in the way the snake moves. When its body undulates, it’s not easy to tell which direction the snake is going to take. “It will seem to go in one direction, and then, very unexpectedly, it will veer in completely another direction.”

For this, it is said that 2013 may be difficult to plan for. To overcome this, one must have the ability to decide fast or quickly react like the snake when confronted with a sudden change in situation. As said, “quick maneuvers are going to be needed in order to overcome unexpected obstacles.”

Not having such natural ability, one is admonished to make use of tools or gadgets to reinforce one’s faculties.

As foretold, “delusion and deception in the mind are common in the year of the water snake.” Thus, for this year, it is advised that “it is best to work with others,” following the dictum that two minds working together are better than one.

On a personal note, it is advised that you should “be thrifty, and conscientiously save money. This should be a top concern.” The year of the snake can lead you to spend money more quickly than earn them.

Bottom-line spin

Like our market, Wall Street’s main indices closed higher last Friday. S&P 500’s closing index was described to be “its best level since 2007” on reports that the US economy is gaining and showing clear signs of recovery from recession with the latest employment data as a preponderant supporting proof. The DJIA closed 43.85 points, or 0.33 percent, higher at 13,345.21; the Nasdaq was up 1.09 points, or 0.04 percent; and the S&P 500 rose 7.10 points, or 0.49 percent, to 1,466.47.

I still feel that our market and that of Wall Street are similarly situated. They are not yet on sure footing despite their early gains last week. Both look still soft and indeterminate. Like the snake’s gait, they could head up one moment and head down the next, with their directions still far from clear. In this connection, my trading advice is to have alternatives, be it with your stock picks or trading game for the period. Most importantly, be quick to react.

Interest rates on treasury bills stayed below 1 percent during Monday’s auction, with the yield on the 91-day securities plunging to a new record low of 0.05 percent.

National Treasurer Rosalia de Leon said in an interview that the results were probably due to the excess liquidity in the domestic securities market as well as expectations that inflation would remain low.

Monday’s results were mixed, with the yield on the 182-day bill easing to 0.3 percent while that for the 364-day bill rising to 0.763 percent.

The latest rate for the three-month bill was 14.8 basis points lower than the previous average. For the six-month bill, it was 2.2 basis points lower and for the yearlong bill, it was 15.7 basis points higher.

The result for the benchmark bill was 24 basis points lower than the corresponding 0.29 percent for done deals at the private-run Philippine Dealing and Exchange Corp.

In the secondary market, prevailing rates for the 182-day bill was 27.5 basis points higher at 0.575 percent, and for the 364-day bills, 3.8 basis points lower at 0.725 percent.

The Bureau of the Treasury raised a total of P15.8 billion instead of the planned P15 billion. Investors tendered a total of P62.62 billion, or more than four times the total offering.

De Leon expressed pleasure with the market’s reception of the Treasury’s first auction for the year, particularly as the government has just started implementing a revised schedule of offerings.

Auctions are now held monthly—but with larger offer volumes—for both treasury bills and bonds. Previously, these were held every two weeks.

Asked when the government planned to issue global bonds this year, De Leon said there were no such plans yet. In the past several years, the government has been going to the international commercial market every January.

She said the plan for this year was to source 20 percent of the government’s funding deficit from overseas lenders.

“There is no need to do so at the moment, but that is part of the financing program because we have to maintain our presence in the foreign market,” De Leon added.

De Leon said the Treasury was likely to issue the so-called onshore dollar bonds rather than global bonds. The Treasury late last year issued $500 million worth of these dollar-denominated securities that were meant for domestic buyers.

About three weeks ago, I asked: Who will take up the cudgels for the minority shareholders who stand to suffer from higher taxes and administrative burdens imposed by Revenue Regulation No. 16-2012 (“RR 16-12”)?

Minority shareholders holding at least P72 billion worth of shares are affected by the issuance of RR 16-12. Two weeks ago, my question (and perhaps, the investing public’s prayers) had been answered.

In a letter addressed to the Commissioner of Internal Revenue, Secretary of Finance and the Securities and Exchange Commission, the Shareholders’ Association of the Philippines (SharePHIL) raised its concerns on the deleterious effects of RR 16-12 on the rights of minority shareholders.

SharePHIL is a group that protects shareholders’ rights. Its vision is to be the leading institution and catalyst in the protection and promotion of shareholder rights, duties and responsibilities. Its mission is to be a major player in promoting domestic capital market development through advocacy, education and enlightenment of shareholders.

In 2011, the SEC directed the Philippine Stock Exchange to amend its MPO rule by shortening the deadline for all listed companies to comply with the MPO requirement by 31 Dec. 2012. Companies that fail to meet the deadline would automatically be subjected to a six-month trading suspension, and delisting if they are still noncompliant after six months.

The Amended MPO Rule empowers the SEC to grant, upon the recommendation of the PSE, extensions in justifiable causes where the listed company has a concrete program to restore its public ownership level to the required percentage.

Accordingly, several listed companies applied for extension to comply with the Amended MPO Rule.

The extension would have enabled investors to continue enjoying the preferential tax rate of ½ of 1 percent of the transaction value and the simplified procedure under the law when they sell their shares through the PSE.

Last December, however, the Finance secretary and the Revenue commissioner released RR 16-12 imposing (net) capital gains tax (5 percent/10 percent) and documentary stamp taxes (DST) on the trading of shares of stock of noncompliant companies after the 2012 deadline, regardless of any extension given by the SEC.

As a consequence, the SEC denied all requests for extension of the grace period (Blanket Denial) to comply with the MPO requirement, regardless of their individual merit. Furthermore, the SEC directed the PSE to suspend all noncompliant companies starting 1 Jan. 2013, and automatically delist noncompliant companies after the suspension period.

SharePHIL requested the Finance chief and Revenue commissioner to reconsider RR 16-12, and suspend its implementation. SharePHIL also requested the SEC to reconsider the Blanket Denial based on the individual merit of the applications of noncompliant firms.

Basically, SharePHIL is saying that RR 16-12 is a squeeze-out mechanism that will work against minority shareholders in utter disregard of their rights under the law.

First, the implementation of RR 16-12 vis-à-vis the SEC Blanket Denial will reduce liquidity in the secondary market because of the higher transaction costs and greater administrative burden on minority shareholders who wish to sell their stakes in affected firms. Minority shareholders will now have to pay the (net) capital gains tax (5 percent/10 percent) and DST instead of the ½ of 1 percent stock transaction tax mandated by law. They will now also have to file several returns and additional documentary requirements with the Bureau of Internal Revenue for each transaction.

SharePHIL notes that minority shareholders do not have the same economies of scale as do larger shareholders, to reduce the costs associated with a transaction on a per share or peso basis. The additional costs and burdens imposed on the transfer of shares, as well as the automatic suspension or delisting of publicly listed companies, will further reduce liquidity in the secondary market.

SharePHIL further explained that delisting companies from the PSE will result in a lower disclosure regime that will adversely affect good corporate governance because of the lack of market check and reduced price transparency and accuracy.

Second, SharePHIL argued that the tender offer (which is a PSE requirement for delisting a noncompliant company) will not necessarily serve the best interest of minority shareholders. Unlike the mandatory tender offer required by the Securities Regulation Code, where a significant block of shares (35 percent or more) is being acquired, or where the resulting interest of the acquiring shareholder is majority ownership of the target company, there is no control or significant shareholding premium involved when the person(s) required to make the tender offer are already the controlling shareholders of the company.

What this all means is that minority shareholders will not be able to obtain the true value of their shareholdings as they are made to choose between (1) an offer that does not offer any premium and may be well below the true worth of the listed company, and (2) higher tax and administrative burdens and increased transaction costs. Either way, the minority shareholders hold the proverbial “empty bag.”

Third, SharePHIL asserts that the Tax Code only requires that shares of stock be listed and traded in the local stock exchange subject to the stock transaction tax of ½ of 1 percent in lieu of (net) capital gains tax and regular corporate or individual income tax, and exempt from DST.

RR 16-12 constitutes an illegal change of rules in the middle of the game that would erode the confidence of the investing public in our market.

Based on PSE’s final report, there are 10 noncompliant companies that account for about P722.3 billion in market capitalization, or 7.67 percent of the total domestic market capitalization of our stock market. If delisted from the PSE, the market capitalization of our stock market will be greatly reduced, which will make it less attractive to investors and adversely impact on local share prices to the detriment of the innocent small Juans and Marias.

With SharePhil leading the way, minority shareholders may just have found a voice to champion their cause.

(The author is co-managing partner and head of the corporate and special projects department of ACCRALAW, and a law professor at the Ateneo Law School. He may be contacted at felim@accralaw.com.)

Question: Many are optimistic that the stock market will continue to be bullish this year with the index likely to reach an all-time high of 6,500. While this is definitely good news, I am beginning to feel uncomfortable as share prices are already very high. I am not sure if I should buy more or start selling at the current level. Can you advise me?—Gigi F. by e-mail

Answer: If you want to take advantage of the current bullish momentum, you can trade for short-term gain by buying one of the most active stocks and sell it immediately as soon it makes a profit.

This is actually fun but it be can be risky. If the stock fails to move up as expected, you may have to sell it at a loss to recover your cash at once. If you choose to hold on to it in the hope that the stock will improve later, you may risk losing more if the stock suddenly takes a sharp fall.

While it is true that the market enjoys strong economic fundamentals and liquidity flows, the potential for further upside at the moment may be limited as stocks have become expensive by Price-to-Earnings (P/E) valuation.

In fact, the Philippine market, which has market P/E of 19x is relatively more expensive than Singapore or Hong Kong, which has market P/E of only about 12x. To justify the current share prices, corporate earnings must demonstrate exceptional earnings growth to bring down P/E valuations.

If you are deciding whether to buy or sell, consider analyzing this from a risk and reward ratio. Let’s assume the market falls from its current level of 6,055, the immediate support would be 5,866, which gives a 3.1-percent loss. If, on the other hand, the market continues its uptrend and the first resistance is 6,130, you will get 1.2 percent return.

If the probability is high that the market will stop at 6,130, it may not be a good idea to buy at this point because you will risk more in order to gain. It will be wise to start taking profits on some stocks, especially those that have become expensive and invest the cash proceeds to cheaper stocks or simply keep it at the bank until another opportunity arises.

If the prospect of further upside is limited, does this mean that the market may crash soon?

Not necessarily. It only means that the current uptrend may be reaching its terminal phase because share prices are trading well above their underlying values caused by market traders who are bidding shares based on overly optimistic earnings assumptions.

The index must eventually correct itself by falling to levels acceptable to the market. It can fall by as much as 10 percent over a period of time. Corrections are inevitable. What goes up must come down.

In a bull market scenario, any price dip is considered temporary because you expect the stock to recover again. In fact, it is during this time when you take the opportunity to buy back stocks at a lower price for another market run-up. However, if the trend has reversed, any share price rally will be minimal and the selling will continue and possibly accelerate the market downwards.

Do you know that a bull market lasts for three to four years? Our current bull run actually started last March 2009 and it will be celebrating its 4th anniversary this March 2013. Could the end of the bull market be near?

No one knows when this will happen but there are signs that the market is ripe for massive correction. Do you see more of your friends now talking about stock market than in the previous years? Do you see people discussing about stocks more than usual at Facebook, Twitter or online forums? Do you hear radio and TV shows discussing about opportunities in stock market more often than before? Are newspapers featuring stock market news or stories on the front page? Are brokers and fund managers making bold forecast that the index may reach 7,000 level this year?

As more people talk about making money from stocks, more people will get into the market hoping that they will also make a fortune. As buying of stocks increases, people will be chasing stocks and drive share prices above their intrinsic values. Market psychology will tell you that this could be a sign that the party will be over soon.

This is the best time for you to assess your portfolio and evaluate your positions. You may have to reallocate some of your stock investments into other assets for the moment as you wait for the market to correct.

Yes, you will probably feel some regrets as you say goodbye to your favorite stocks for now especially if you see the stock continue rising after you have sold it. There is no way you can catch the market top and maximize your profit. Start selling gradually. Sell while it feels good.

Do not wait for the market to fall before you start selling. You may not be able to sell it at the price you want because you will be rushing to sell down for fear that the share prices may go lower.

Just like the perfect punch that knocked out the “Pacman,” it only takes a single bad news to knock this market down so be careful and watchful.

Henry Ong is a registered financial planner of RFP Philippines. To learn more about financial planning and how to become RFP, attend our free personal finance talk on Jan. 17, 7 p.m., at PSE Center, Ortigas. To reserve, e-mail info@rfp.ph or visit www.rfp.ph.

The Philippine Stock Exchange sees exchange-traded funds (ETFs) coming into play in the bourse by the first quarter of 2013, diversifying investment options in a low-interest rate environment.

PSE president Hans Sicat, speaking at the final plenary session of a two-day Citi-FT Financial Education Summit 2012, said the introduction of new products was part of the exchange’s attempt to widen investor participation in the stock market.

Sicat talked about the PSE’s market education efforts targeting people with at least P100,000 in savings.

At present, he estimated that about 39 percent of people with savings kept their money in banks, while another 39 percent kept them at home.

Sicat stressed the need for the PSE to reach out to the populace. Even as the market is hitting all-time highs, he said the common perception was that stock investing was only for the wealthy and that it was a form of gambling.

The Securities and Exchange Commission recently approved the regulatory framework for the offering of ETF, a financial instrument that tracks an index, a commodity or a basket of assets like an index fund. Since it trades like a stock on an exchange, its net asset value (NAV) is not calculated every day but it usually trades close to its NAV.

Sicat said these instruments could be introduced by the first quarter of next year, along with other products like securities borrowing and lending.

An ETF offers public investors an undivided interest in a pool of securities and other assets. It is similar in many ways to traditional mutual funds, except that shares in an ETF can be bought and sold throughout the day like stocks on an exchange through a broker or dealer.

More than 130 financial education experts and policy-makers around the world convened in town in the last two days to discuss financial capability as a 21st century life skill at the Citi-FT Summit, putting emphasis on the need to reach out to under-served segments such as the youth, migrant workers, women “at risk” or those abused or exploited, and people in rural areas.

Commenting on the summit, Citi Foundation chief operating officer Brandee McHale said this was “an important forum highlighting the critical need to improve consumer financial capabilities across age and income segments.”

Brandee added: “Financial capability is not a standalone issue, but linked to a broader financial inclusion dialogue. The Summit provides an opportunity to roll up our sleeves and examine what works and why.”

Over the last two days, the summit served as a venue for public and private sector representatives as well as non-government organizations from all over the world to share best practices, key insights and recommendations to address financial education needs.

MANILA, Philippines - For the seventh consecutive trading day, the main stock index rewrote records anew, hitting a fresh all-time high yesterday as investors remained bullish on Philippine economic and business prospects.

The benchmark Philippine Stock Exchange index (PSEi) finished at a new record high of 6,091.18, up 42.28 points or 0.7 percent from Tuesday’s close.

Since last year, the PSEi has registered record highs a total of 44 times.

The broader All Shares index gained 0.57 percent or 21.64 points to 3,835.29 as all counters supported the uptick, led by mining and oil firms and property companies.

Market breadth was positive, as advancers beat decliners, 109 to 73, while 32 stocks remained unchanged. Value of shares traded increased to P8.54 billion from P7.47 billion a day ago.

“The bull run continues. It is being powered by market liquidity and economic prospects for the year,” Astro C. del Castillo, managing director of First Grade Finance Inc., said in a phone interview.

The local market, along with other Asian bourses, bucked the downtrend in the US, where investors worried over lackluster corporate earnings growth in the fourth quarter.

Amid the overbought levels of the market, Del Castillo said “there seems to be a room for more run.”

“It seems the bulls are hungry for the 6,100 mark,” he said.

Around Asia, stocks rose yesterday after the fourth-quarter earnings season got off to a positive start in the US with aluminum giant Alcoa forecasting higher demand for 2013.

MANILA, Philippines - The Board of Investments (BOI) is completing preparations for its investment conference InvestMart, and road shows on business opportunities in the country’s different regions this year as it seeks to encourage local investments.

Trade undersecretary Cristino Panlilio said the InvestMart and road shows are part of the government’s efforts to increase domestic investments, even as it is works to attract foreign firms to do business here.

“To complement our strengthened effort to attract foreign investors in the Philippines, we will continue to make parallel efforts to boost domestic investments in the country in 2013,” he said.

Panlilio said preparations for the InvestMart conference and exhibition, which aims to present investment opportunities in the regions would be completed.

He said the government plans to hold the InvestMart with a leading industry association.

“We have also worked with industry players and associations in identifying potential investment areas and sectors for promotion such as the public private partnership (projects), pharmaceuticals, electronics, copper, and auto parts and components,” he said.

He said the BOI is likewise looking to hold more investment road shows this year.

“For this year, we are also targeting 11 investment road shows, which are primarily intended to provide a venue for presentation of the approved Investment Priorities Plan (IPP),” he said.

The Securities and Exchange Commission is no longer keen on imposing a 60-40 percent local-foreign ownership restriction on each class of shares, as originally intended by the controversial Supreme Court ruling on the capital of Philippine Long Distance Telephone Co.

In a briefing on Thursday, SEC chairperson Teresita Herbosa cited an “entry of judgment” received by the SEC from the Supreme Court on Jan. 9. This clarified that the “dispositive” portion of the SEC decision dated June 28 was that the term “capital” as referred to in the Constitution “refers only to shares of stock entitled to vote in the election of directors, and thus in the present case, only to common shares and not to the total outstanding capital stock (common and non-voting preferred shares).”

As such, Herbosa said: “Maybe we won’t go to the strict rule of requiring 60 percent (local ownership) in each class of shares.”

“We will try to come up with rules that will lessen conflict and controversy (that are) acceptable to all, but we also see the need for foreign capital to come in,” Herbosa said.

When the draft guidelines on foreign ownership were drafted, Herbosa said this adopted the most restrictive framework.

The Supreme Court’s entry of judgment was favorable to the claim of PLDT lawyers that the dispositive portion was not modified in the Oct. 9, 2012, decision on the motion for reconsideration.

This suggests that the Supreme Court has accepted that the statements pertaining to classes of shares were in the nature of obitur dictum and do not represent a legal precedent, and that the SEC is not legally compelled to follow it.